Piramal Enterprises to Join Forces with its Unlisted Home Financing Arm

By Consultants Review Team Thursday, 09 May 2024

Piramal Enterprises, a non-bank financing firm with a diverse portfolio, has received approval from its board of directors to combine with its wholly owned subsidiary Piramal Capital & Housing financing (PCHFL), which will now be rebranded as Piramal Finance.

In exchange for their Piramal Enterprises shares, shareholders would get one equity share of PFL and, pending RBI permission, one NCRPS (non-convertible non-cumulative nonparticipating redeemable preference share) of Rs 67 of PFL for each share of Piramal Enterprises.

The business anticipates finishing the procedure in nine to twelve months. Simplifying the group structure and granting shareholders direct access to the whole loan company are the main goals of the consolidation.

The Board of Directors has approved PEL's merger with its subsidiary, Piramal Capital & Housing Finance Ltd., subject to regulatory approvals, with the aim of further streamlining our group structure and creating a stronger, more flexible entity that enhances value for all stakeholders, stated Ajay Piramal, Chairman of Piramal Enterprises.

As a home finance company (HFC), Piramal Capital must abide by the Principal Business Criteria (PBC), which state that at least 60% of loans for housing finance and at least 50% of loans to people for housing finance must be made.

According to the corporation, PCHFL has not been able to meet the aforementioned PBC criterion because of its existing varied lending profile. As a result, it is currently applying to the RBI to have its HFC license converted to an NBFC-ICC license.

As per the RBI, an NBFC-ICC is any firm whose primary operations involve asset finance, which includes loan provision and securities purchase.

Additionally, Piramal Enterprises determined that the company could not hold two NBFC licenses within the same group; hence, those concerns are resolved by the consolidation.

Furthermore, as mandated by RBI regulations, Piramal Capital must be mandatory listed by September 2025 due to its status as an upper-layer NBFC.

"Piramal Capital, an NBFC of higher tier, is required to go public by September 2025. The resulting listed firm will fulfill that condition if a merger is pursued. Operational inefficiencies are introduced by having two lending businesses, which is another incentive to pursue a merger. According to managing director of Piramal Enterprises Jairam Sridharan, "We believe having one entity is a cleaner structure from a governance perspective and ongoing operating inefficiency."

He said, "Our business model is a multi-product retail, which means a pure housing finance licence can end up being restrictive."

Piramal Enterprises stated in an exchange statement that the combination of PEL and PCHFL will be a smooth transition because PCHFL has considerably greater geographic reach and operational scope as compared to PEL."

The National Company Law Tribunal, which has jurisdiction over the scheme, must sanction it. Additionally, the National Stock Exchange of India Limited, BSE, SEBI, Reserve Bank of India, shareholders, creditors, and any other relevant regulatory or governmental authority or person must also grant the scheme the necessary approvals.

In contrast to a loss of Rs 195.9 crore during the same period the previous fiscal year, Piramal Enterprises reported a net profit of Rs 137 crore for the fourth quarter that ended in March on May 8. The operating revenue for the quarter was Rs 2,473.3 crore, up 16 percent from the previous year.

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